Client Alerts

Federal Appellate Court Affirms CFTC’s Decision To Deny Tolling Statute of Limitations During Pendency of NFA Arbitration

By: Michael A. Gross and Frances Floriano Goins

About: Broker-Dealer & Investment Litigation, Financial Services, Securities & Commodities Litigation

In a May 25, 2017 decision, the U.S. Court of Appeals for the Seventh Circuit affirmed a Commodity Futures Trading Commission (CFTC) Opinion and Order dismissing a reparations claim based on statute of limitations grounds. Conway Family Trust v. Commodities Futures Trading Commission, No. 16-3289 (7th Cir. 2017). Notably, the court held that the limitations period was not equitably tolled while the petitioners’ claim was pending with a National Futures Association (NFA) arbitration panel. This favorable result for defendants is worthy of note for others faced with equitable tolling claims in similar situations.

NFA Arbitration

In October 2010, the Conway Family Trust and its co-trustees (Conway) submitted a notice of intent to arbitrate claims against futures commission merchant Dorman Trading, LLC (Dorman) and others to the NFA. In that proceeding, Conway sought to recover alleged losses sustained in October 2008.

The NFA arbitration panel issued an order in September 2011 provisionally granting Dorman’s motion to dismiss on the grounds that the one-year limitations period in the Dorman Customer Agreement applied to Conway’s NFA arbitration claims, and that the limitations period had expired two years earlier because the alleged losses were incurred in October 2008. The panel advised Conway that dismissal would be granted “unless [Conway] files a Motion to Amend along with a re-pled Claim no later than thirty days from the date of service of this Order.” Instead of amending or re-pleading its arbitration claims, however, Conway notified the panel of its intent to pursue its claims against Dorman through a CFTC reparations claim. Accordingly, the panel dismissed the claims against Dorman with prejudice.

Reparations Claim

Conway filed its reparations claim against Dorman with the CFTC in October 2011. In May 2014, the Judgment Officer dismissed the claims based on the two-year statute of limitations in the Commodity Exchange Act. Conway appealed.

In July 2016, the CFTC affirmed the dismissal, rejecting Conway’s argument that the statute of limitations should have been tolled during the pendency of the NFA arbitration. In reaching its conclusion, the CFTC noted that, at the outset of the NFA arbitration, Conway had acknowledged that pursuing a remedy through the NFA might interfere with future participation in the CFTC reparations program, and that Conway filed the reparations claim only after the NFA issued its initial adverse order. The CFTC concluded that a case of mistake or ignorance of law or excusable neglect, such as this one, does not justify tolling the limitations period.

Seventh Circuit

The Seventh Circuit took issue with Conway’s attempt to take a second bite at the apple and affirmed the CFTC’s decision to reject Conway’s equitable tolling argument. The court said: “Having lost against Dorman Trading in one forum, [Conway] sought a better result from the Commission and contended that the time devoted to pursuing relief through the Association should be subtracted from the two years allowed to seek relief from the Commission.” The court noted that the doctrine of equitable tolling applies only when a litigant can show he has been pursuing his rights diligently, and that extraordinary circumstances prevented timely filing. The court then concluded that Conway could not make this showing because it initially chose to pursue its claims through an NFA arbitration, rather than a CFTC reparations claim.

Practice Takeaways

Careful analysis of all potential claims must precede a choice of forum decision. In an appropriate case where the arbitrability of some claims is questionable, a claimant might be better served by simultaneous filings in appropriate forums, or filing all claims in a court proceeding with a motion to stay pending arbitration. For a defendant, eliciting admissions like Conway’s here that filing in one forum might preclude filing in another could be crucial.